The report finds that private equity deal activity continues to gain momentum as sponsors adapt to a more disciplined investment environment and put significant dry powder to work. While economic uncertainty, financing costs, and valuation expectations remain key considerations, geopolitical tensions, tariff uncertainty, inflation concerns, and AI-related disruption have moderated activity but have not derailed the recovery.

Sponsors are deploying capital selectively, prioritizing high-quality businesses, resilient sectors, and companies with clear earnings visibility. Firms are finding opportunities in sectors with strong growth fundamentals and through creative liquidity and value-creation strategies.

“Private equity sponsors are finding opportunities where they can underwrite durable earnings, plan realistic exit paths, and account for local market dynamics,” said Chris Sheaffer, global vice-chair of Reed Smith’s Private Equity Group. “As deal activity improves, active investors are pairing dry powder with pricing rigor and a clear view of operational value creation.” 

This caution is especially visible in exits and fundraising. Exit markets have reopened modestly, but recovery remains uneven. Activity has concentrated in larger, higher-quality assets and IPO-ready companies rather than broad-based realizations, leaving aging portfolios and extended hold periods as persistent challenges. Fundraising continues to favor established managers, with LP capital concentrated among larger, experienced GPs and conditions still difficult for emerging managers.

Technology and regional differences are also shaping where momentum is strongest. Artificial intelligence continues to attract a disproportionate share of venture and growth capital, while creating uncertainty around software valuations and technology underwriting in private equity transactions. The recovery is also becoming more regional than synchronized, with governance reforms in Japan, continued expansion of European private markets, and ongoing consolidation in the United States shaping local deal conditions.

A measured recovery is expected to continue in the second half of 2026, supported by gradually improving liquidity, stronger exit activity, and sustained dry powder. Macroeconomic and geopolitical risks are likely to prevent sharp acceleration. Sponsors are expected to remain focused on operational value creation, disciplined pricing, sector specialization, selective cross-border investment, competitive fundraising conditions, and the opportunities and disruption from AI adoption.

Reed Smith’s Private Equity Group enters the second half of 2026 with recognition and rankings from corporate and legal publications and 14 new partners hired globally. The group also launched a Private Equity Behind the Scenes campaign and hosted sector-focused events in New York, Los Angeles, London, Dallas, and Atlanta.